Japanese companies may be investing less in China, but they have by no means given up on the market, according to a report by the Japanese Chamber of Commerce and Industry in China that was released on Wednesday.

In its annual white paper, which discusses key issues facing Japanese companies in China and makes recommendations to the government, the chamber said Japanese companies still have strong intentions to expand in China.

"We hope the paper will promote dialogue and cooperation between the Chinese government and Japanese companies," said Shinjiro Sawada, chairman of the chamber.

With regard to companies' intentions to invest in China in the next year or two, the ratio of those planning to increase investment was 54.2 per cent, up about 2 percentage points year-on-year.

Another 39.6 per cent said they will maintain the current level, according to a survey conducted by the Japan External Trade Organization in October and November 2013.

"Most of these who hope to keep up the momentum in China are producing and selling in China, such as food companies," said Yoshihisa Tabata, vice-chairman of the chamber.

Tabata said that traditional manufacturers focusing on processing trade in industries such as electronics and fiber may shrink their operations or shift to cheaper markets.

The paper noted that with increasing costs for materials and labor, and growing concerns about the risk of having too many resources concentrated in China, Japanese investment in China slid in the latter half of 2013.

In the white paper, the chamber reiterated the commitment of Japanese companies to China and noted that Japanese companies had helped Chinese companies to strengthen their technology levels, improve their business efficiency and become more competitive on both the supplier and customer sides.

However, the chamber also called for equal treatment of Japanese companies in China.

The paper called for the development of rules for a market-oriented economy and adequate implementation, the loosening of excessive government regulations and equal treatment of domestic and foreign companies and application of global standards.

In the January-May period, overall nonfinancial foreign direct investment in China rose 2.8 per cent to $48.91 billion. However, FDI from Japan slumped 42.2 per cent, according to the Ministry of Commerce.

Nevertheless, Japan was still among the top five investors in China.

"Political tensions aside, the outlook for Japanese investment in China depends on the size of the Chinese market and also the competitiveness of Japanese companies," said Song Hong, an economist at the Institute of World Economics and Politics at the Chinese Academy of Social Sciences.

"To my knowledge, most Japanese companies are planning to maintain their production in China and are still betting on the huge Chinese market," said Song.

Still, Japanese companies, especially those in the vehicle and electronic sectors, are losing competitiveness in the global context.

Moreover, they are confronted with fierce competition as more foreign companies battle for market share and local companies gain strength.